Chief executive salary masked by warm City reaction to Cook results

Thomas Cook’s release of a trading update to coincide with its annual general meeting on March 19 set one or two pulses racing.

After all, the group issued an interim management statement as recently as February 12 and updates on trading are not normally monthly events.

But these are not normal times. As it was, there was no cause for trepidation. If anything, the message to shareholders was more upbeat than in February.

Cooks reported no change in trading for summer 2009 in the UK, but said markets in Continental and Northern Europe – largely Germany and Scandinavia – had picked up. That is important given Germany, the UK and Scandinavia are Europe’s biggest markets.

The update described UK summer trading as “robust” and reported Cook had 14% less to sell in the shoulder months than a year ago, with more than half its summer programme sold by mid-March. So consumers hanging back for last-minute bargains appear destined for disappointment. Average summer selling prices in the UK remained 9% up on a year ago, the same as in February, with bookings down 11% year on year, in line with cuts in capacity.

This follows a good winter for Thomas Cook in the UK, with average selling prices up 7% on 2007-08 and cumulative bookings just 5% down, the same as the reduction in capacity – all well and good.

Cumulate summer bookings in Continental Europe had improved a little since February from 20% to 18% down on last year, and just 11% behind in the four weeks prior to the statement – again in line with capacity reductions. Summer bookings in Northern Europe also appear to have picked up, with recent trading just 6% down year on year – again matching capacity – compared with 14% in February.

In Germany, Thomas Cook described winter bookings as “encouraging following a tough January”. For summer, it reported: “Productive negotiations with hoteliers have helped stimulate improving demand.”

Only the figures for North America look truly bad – with prices down on a year ago and a shortfall in bookings way out of kilter with capacity despite a reduction of near one in four seats.

At least two trends appear confirmed by the latest update. First, the consumer shift to medium-haul destinations is reflected in UK sales for the current winter up 17% on a year ago despite a medium-haul capacity increase of just 2%. In line with this, medium-haul destinations form 69% of Thomas Cook’s summer charter programme – reflecting the popularity of Turkey and the strength of traditional tour operating beyond the usual range of the low-cost carriers.

Second, all-inclusive bookings are running at 40% of the group’s UK total – presumably reflecting consumer financial concerns, in particular about the value of sterling.

The City was duly impressed, with analyst Nick Batram of KBCPeelHunt concluding: “Lates appear to be coming through nicely. Prices are holding up. Germany is recovering. We fundamentally like the business.” More generally, Bartram suggests: “Despite the gloomy economic backdrop, the mainstream operators look well placed to deliver earnings growth in the current year.”

So there is every reason for chief executive Manny Fontenla-Novoa to be wearing his usual smile – except maybe not for a moment or two at last week’s AGM.

These meetings typically pass without controversy. Of 13 resolutions to shareholders last week only one attracted more than miniscule opposition. The most controversial of the other 12 was the re-appointment of PricewaterhouseCoopers as Thomas Cook’s auditors– accepted by only 98.11% of voting shareholders.

But one issue provoked rather more opposition – remuneration. You may remember Fontenla-Novoa has done rather well from overseeing the merger of Thomas Cook and MyTravel – so well, that he received a total of £7,037,000 in salary, bonus and benefits for 2008. Some £5 million of that came in a revised bonus payment for synergy savings resulting from the merger.

Fontenla-Novoa’s career may be moving in the opposite direction to former Royal Bank of Scotland boss Fred Goodwin, but £5 million on top of an annual bonus of £1.364 million seems hefty, especially in the current climate.

The group’s annual report explains: “Following the success of the original synergy programme . . . the Remuneration Committee considered it appropriate to develop a new bespoke incentive arrangement to incentivise further synergies.” It seems a significant body of shareholders disagreed – those holding just over 34% of shares voted against the remuneration report. That is a major revolt in such circles.

More information:

* Thomas Cook Group Trading Update

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